Less than 7 percent of industry violations since 1996 have resulted in fines, as state regulators focus on compliance, not punishment.

Apr. 7, 2013

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Colorado’s largest oil and gas fines

These are the five largest fines ever levied against oil and gas companies in Colorado: 1. $940,000: West Hawk Energy, Rio Blanco County, 2011

West Hawk, which had failed to post adequate financial assurance for its inactive oil and gas wells in the Piceance Basin northwest of Rifle, racked up 15 violations in 2009. At one well, dead animals were found in an exposed pit, in which crude oil had accumulated. At other wells, pits filled with fluids and oil were left in poor condition and open to passing animals, while garbage had accumulated at another well. West Hawk dissolved and the state foreclosed on the company’s financial assurance. 2. $423,000: Williams Production, Garfield County, 2010

Williams had installed an oil and gas pit in an environmentally sensitive area without a permit. Oil-and-gas-produced water leaked out of the pit, polluting groundwater at Prather Spring and contaminating water a nearby cabin owner drank. The man was taken to the hospital after drinking the water from his faucet. Williams’ fine was reduced from $498,000 for its prompt and costly response to violations. 3. $420,000: Dolphin Energy, Garfield County, 2011

Inspection of Dolphin’s seven oil and gas well sites showed the areas had been inadequately reclaimed and revegetated after drilling. The company took few environmental precautions when constructing some of the sites, leaving debris and drilling equipment behind and long-term environmental and public health hazards at others. Some wells were improperly abandoned. 4. $390,000: OXY USA, Garfield County, 2010

OXY put drilling fluids in an unlined, unpermitted drilling pit in an environmentally sensitive area. Oil and gas well fluids, or produced water, leached into the groundwater, and were seen coming out of two nearby springs. COGCC reduced OXY’s fine from $500,000 to $390,000 for the company’s prompt response to violations, cooperation with commission and spending $1.5 million to clean up the contamination and another $8 million to reduce the number of pits the company uses in its operations. 5. $380,000: S&S Energy, Baca County, 2011

S&S failed to file numerous production and other reports with the state and improperly shut in the wells in an entire oil and gas field it operated without notifying the state. The company made no effort to comply with state rules. Source: Colorado Oil and Gas Conservation Commission documents

The most common violators

Only a few oil and gas companies operating in Colorado have been fined more than four times since 1996. Here is a list of Colorado’s most frequent violators and fines levied against them: DJ Production Services

When things go awry at an oil and gas well, it’s unlikely the state will fine the company.

In 2011, toxic hydrogen sulfide gas was found in 78 oil wells surrounding the northern Weld County town of Grover. The company operating the wells, Noble Energy, waited nearly eight months to make a required report about the hydrogen sulfide to the state.

Just a few breaths of hydrogen sulfide in high concentrations can be fatal, but in lower concentrations the gas can cause vomiting, dizziness and eye damage. It’s a threat to anyone living near oil and gas wells where the gas is present and to workers at drilling rigs throughout the country.

Colorado Oil and Gas Conservation Commission, the COGCC, could have penalized Noble with a fine. But commissioners didn’t.

Instead, Noble, which did not respond to requests for comment, was rewarded for cooperating with the commission, which required the company to create a $50,000 hydrogen sulfide awareness program. The program was to eventually to be turned over to the industry’s lobbying group, the Colorado Oil and Gas Association, for future hydrogen sulfide training sessions.

“Noble and the COGCC mutually agreed a better use of a $50,000 penalty was to develop an industry awareness and first-responder training program,” COGCC spokesman Todd Hartman said. “We think this is an important outcome and will bring great public benefit.”

A rarity

No matter the violation, it’s extremely rare for the state to fine oil and gas companies for running afoul of the rules.

COGCC has issued 3,852 violation notices to oil and gas companies since January 1, 1996. Of those violations, only 267 — just less than 7 percent — have resulted in fines, excluding any that are currently pending or those that involved the state claiming only a company’s well-plugging or financial assurance bonds.

That data was compiled as part of a Coloradoan analysis of COGCC violation hearing documents filed between January 1, 1996 and April 2, 2013.

If a rules violation has little public health or environmental impact, state law prohibits any energy company from being fined more than $1,000 for a single violation per day, with the total fine capped at $10,000. The commission can increase that amount if it deems the violation to be reckless.

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But those fines are often no more than $2,000 and are most often levied against small energy companies, though major companies such as Encana and Noble Energy have racked up their share of fines. Prior to 1996, it was common for oil and gas companies to be fined as little $250 for environmental and other violations.

Of the 268 fines the state has levied in the last 17 years, 112 have been for $2,000 or less.

The average oil and gas fine calculates to $21,892 since 1996. Only 12 fines have been $100,000 or higher, nearly all of which were levied for violations in the Piceance Basin of Rio Blanco and Garfield counties, the highest of which were related to serious groundwater contamination. Three of the fines were levied for violations in far eastern Colorado. None were levied in Northern Colorado counties.

The COGCC doesn’t often aim for fines because compliance is considered more important.

Prospect Energy, the only oil company operating in Fort Collins, was issued a violation notice last year because of a mechanical problem with one of its wells. After the COGCC inspector gave the company several options to fix the problem, Prospect made the repair and the case was closed in December.

The COGCC wants problem-free oil and gas production and isn’t trying to lay hefty fines on energy companies whose wells may have problems, COGCC inspector Jim Precup told the Coloradoan in October.

“There’s not a site out there that I can inspect and not find something wrong,” he said. “I’m looking for compliance.”

That position is supported by COGA, the industry’s lobbying group.

“Oil and gas regulations must work to both protect the environment and the business climate by encouraging best practices without being punitive,” said COGA spokesman Doug Flanders. “There are over 107,000 Colorado men and women whose jobs are supported by the industry.”

Often, the COGCC chooses to claim a company’s well-plugging or financial assurance bond instead of imposing a fine, or settles with a company for dramatically reduced fines, sometimes cutting six-figure penalties by tens of thousands of dollars.

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That’s what the commission did in November for an oil company operating in Weld and Adams counties called Texas Tea, LLC, which has been issued 49 violation notices since 1999.

The company had illegally abandoned some of its oil wells, leaving behind oil-saturated soil and garbage, failing to provide financial assurance and breaking a raft of other state oil and gas regulations over several years. The base fine for all of Texas Tea’s violations was $170,000, but the company and the COGCC settled on a $110,000 fine.

The commission then required Texas Tea to pay only $40,000 of that, suspending the remaining $70,000 for as long as the company remained compliant with state regulations.

Texas Tea has since failed to comply with state orders, and the matter is scheduled to be heard before the commission in May, Hartman said.

Sometimes companies get away with not paying anything.

“Since the start of 2010, the COGCC has issued 51 orders imposing fines,” Hartman said. “Of those, 39 were paid in full, and one has been partially paid, with efforts ongoing to recoup the rest of the payment. Unpaid fines mainly involve operators that have ceased Colorado operations.”

Fines in focus

Rep. Mike Foote, D-Lafayette, is trying to ensure that the state has the ability to make oil and gas rules violators pay more. A bill he is sponsoring would increase the maximum fine from $1,000 to $15,000 per day a violation exists. The bill also would impose a minimum $5,000 fine for a serious oil and gas violation that has a significant impact on public health and the environment.

“The fine schedule has not been updated since 1955,” he said, adding that some oil companies are fined only a few thousand dollars for significant environmental damages.

“That’s pretty much like a $1 parking ticket for you and me,” he said.

The bill, House Bill 1267, is up for a House Finance Committee hearing this week.

Flanders said the oil and gas industry wasn’t consulted about raising fines for rule-breaking oil companies.

“We continue to work with State Rep. Foote on his legislation,” Flanders said.